Aave - Treasury Report

Good work as usual Llama team.
Is there any estimation on when the Avalanche network will be included into the report?

Authors from Llama: @Elliott, @MatthewGraham, and @MSilb7.

December 21 - Treasury Report

Llama is pleased to present the December 21 Aave Treasury Report. A fresh Treasury report will be published here each month providing insight into the performance of Aave. Live tracking data is available via the Dune Dashboard .

The Financial statements are set out per reserve showing the income generated from the start of 2021 along with expenses.

We have also presented a token flow statement. It should be noted that this combines all reserves, but for clarity, we have split out each reserve into its own statement and provided a consolidation to show the total movement.

December has seen strong L2 performance with revenue growing month on month in relation to the Polygon Network, however, the Ethereum network has struggled to continually grow as alternative chains such as avalanche gain traction. Polygon and Avalance now have $10B TVL combined.

Key takeaways are:

  • Total treasury balance $574.21m
  • Ethereum Network V1/V2 revenue down 24.9% from November to $2.26m
  • Polygon Network revenue up 16.6% from November to $1,125k
  • Both the Ethereum and Polygon reserves are well-diversified with significant stable coin holdings across both networks >50%. See here for how we are considering deploying these assets to earn additional yield. ARC - Consolidate Aave V1, V2 & AMM Reserve Factors, Purchase CVX and Deploy to Earn Yield

We are working to integrate the Avalanche network into the reporting. Watch this space!!

Please do let me or one of the members at Llama know what you would like to see in the next iteration of this report.

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Authors from Llama: @Elliott, @MatthewGraham, and @MSilb7.

January 22 - Treasury Report

Llama is pleased to present the January 22 Aave Treasury Report. A fresh Treasury report will be published here each month providing insight into the performance of Aave. Live tracking data is available via the Dune Dashboard .

The Financial statements are set out per reserve showing the income generated from the start of 2021 along with expenses to date.

We have also presented a token flow statement. It should be noted that this combines all reserves, but for clarity, we have split out each reserve into its own statement and provided a consolidation to show the total movement.

The end of 2021 and throughout January has seen strong L2 performance with revenue growing month on month in relation to the Polygon Network and also avalanche markets, however, the Ethereum network as a result of rising competition has found it difficult to continue its growth seen early in 2021. Coupled with this January also saw significant downturns in the crypto market. This has ultimately had a significant impact on treasury holdings as a result of $AAVE token depreciation. Token price since the end of December has decreased by 38.2%.

Key takeaways are:

  • Total treasury balance $337.30m
  • Ethereum Network V1/V2 revenue down 12.1% from December to $2.1m
  • Polygon Network revenue up 2.06% from December to $1.15m
  • Both the Ethereum and Polygon reserves are well-diversified with significant stable coin holdings across both networks >50%.

We are working to bridge the gap we currently have with our reporting which is the exclusion of the Avalanche network. Dune does not currently support avalanche, however, we are working to build out an alternative way to track income and expense on this network.

Please do let me or one of the members at Llama know what you would like to see in the next iteration of this report.

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Hi, we are working to hopefully integrate this into the February/March Financial report. Which will include a retrospective look at the Avalanche network since the deployment of Aave on this network.

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Thanks for the report, Elliott.

If you could help us answer few questions, that would be helpful -

  • What is the difference between Disbursements and expenses? As I cannot understand why disbursements are not included in the P&L.

  • As per your December 2021 report, Aave disbursed in total $327m. Can you please break this down by general departments like sales and marketing, operational costs, IT development costs and IT support costs.

  • Do we have an understanding of cash runway and other funding metrics for Ecosystem reserve?

  • We would also like to know the decentralisation level of the protocol. For that we need to understand what amount of disbursements are processed by voting?

Look forward to your reply.

Authors from Llama: @Elliott, @MatthewGraham, and @MSilb7.

February 22 - Treasury Report

Llama is pleased to present the February 22 Aave Treasury Report. A fresh Treasury report will be published here each month providing insight into the performance of Aave. Live tracking data is available via the Dune Dashboard .

The Financial statements are set out per reserve showing the income generated from the start of 2021 along with expenses to date.

We have also presented a token flow statement. It should be noted that this combines all reserves, but for clarity, we have split out each reserve into its own statement and provided a consolidation to show the total movement.

February has been a challenging month with poor market conditions, $Aave is no exception. We have seen a reduction in revenue across the two networks we are currently monitoring.

Key takeaways are:

  • Total treasury balance $293.02m
  • Ethereum Network V1/V2 revenue down 39.8% from January to $1.24m
  • Polygon Network revenue down 54% from January to $527k
  • Both the Ethereum and Polygon reserves are well-diversified with significant stable coin holdings across both networks >50%.

Please do let me or one of the members at Llama know what you would like to see in the next iteration of this report.

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this report was super interesting to see what contributions the Polygon market made to AAVE DAO. @Elliott Thank you for this.

On other note - how are you planning to hedge AAVE price action risk ? As in this pic there’s lot of dependence on AAVE price - are you planning to hedge this via options or something?

I would actually like to comment on this aspect.
We should not forget that AAVE is factually governance power, and even if it is unavoidable to look at asset price sometimes as a reference, the analysis of the AAVE treasury of the system in terms of price is not so meaningful, just an extra reference.
All the distributions from that treasury have the objective of giving governance influence to parties chosen by the Aave governance, not profit.
The real Aave system treasury is the one composed of the income on the liquidity protocol.

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I want to echo some of this thinking. AAVE treasury should consider some diversification efforts, as its’ treasury is basically all native tokens right now. I don’t know if there have been any formal proposals yet, but I’d be happy to work with the group on here to put together a comprehensive strategy to diversify a responsible amount of AAVE tokens into ETH and stable coins. It’s great that right now there are no real operating expenses offsetting the revenue so that even when revenue is down 54% it doesn’t have a negative impact… but this seems like a ticking time bomb for when more operational flows start going through the DAO’s P&L. I think we should get ahead of the curve, and start building a war chest for AAVE, reduce the VaR of the treasury.

Llama community has been putting in a lot of excellent work on this. (See here)

cc: @MatthewGraham

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Hey treasury crew, the Llama team is doing an amazing job with the monthly treasury reports, I myself have a treasury background for many years. Along the lines of diversification that has been mentioned, I’m sure the Llama team would love to have some stable coins / ETH to play with if the DAO treasury was diversified a bit, to earn some yield and also pay for the DAO grants. I saw the new DAO grant proposal for $6mm to be paid fully in AAVE tokens - which seems wild to me. I am planning a proposal discussion to start diversification efforts, would appreciate any feedback from the teams in here as well.

Disclaimer - I’m Alex, a cofounder at Hedgey Finance, CFA and former global treasury manager at WeWork for 6 years (and part of the idea is to use a protocol we’ve deployed to help diversify some of the treasury - though not necessarily the sole tool in this endeavor, just one piece of the toolkit).

This is the outline I’m going for:

Governance Discussion: Aave DAO should diversify a portion of its treasury from governance AAVE tokens into stable coins & ETH

Summary:

There is significant research around the risks for DAOs who hold a large majority of their treasury in native tokens, especially when it comes to long term planning for DAO funding and operations. I am putting forth this initial forum discussion to propose action to begin diversification of the treasury into stable coins and ETH, with a larger goal of creating a treasury management working group, a subgroup under the DAO, to lead ongoing diversification and treasury management goals on behalf of and for the benefit of the DAO. Initially, I propose converting $50mm worth of AAVE tokens to a mix of stable coins (USDC / DAI) and Ether using the Hedgey OTC protocol. $50mm was chosen as an initial diversification amount given other proposals for funding, where some of this cash could be utilized in grants (like upcoming $6mm grant funding proposal), and sufficient funding to formalize paying contributors in stable coins as the DAO forms more formal working groups, like the treasury management group I’ve also proposed.

Pros:

  • Builds a stable capital pool that does not fluctuate with the markets
  • AAVE sale (via OTC protocol) is publicly available, and can include token time locks to avoid any impacts to liquid markets
  • Grants and investments can be funded with ETH and stable coins, avoiding the significant sell pressure often associated with funding grants in AAVE tokens

Cons:

  • Appreciation of the tokens converted will benefit the buyers instead of the Treasury

Outline:

While there are several methods that DAOs can use to convert tokens responsibly to stable coins, I propose a simple over the counter style token sale offering to the Aave community and public at large. This sale would have the additional parameters of incorporating a discount plus a time-lock for the purchased tokens. At Hedgey, we have built protocols for this purpose, allowing DAOs to publicly sell tokens with a time-lock (with tokens locked in an NFT representing their right to claim those tokens after the vesting period ends). Anyone can participate in the sale, including institutional investors, as well as community and retail investors. Utilizing the Hedgey OTC permissionless protocol is a simple way to execute the transaction and event, which would be incorporated directly into a DAO proposal and executed automatically from the passing of the proposal. Exact details regarding the amount, sale price, and discount are up for discussion, though I would propose the following as a starting point. Draft numbers below (three separate tranches of sales):

Amount of Tokens: 150k
Payment Currency: USDC
Price per token: $130
Effective discount: ~20%
Lock Period / Unlock Date: 2 years

Amount of Tokens: 150k
Payment Currency: DAI
Price per token: $140
Effective discount: ~15%
Lock Period / Unlock Date: 18 Months

Amount of Tokens: 75k
Payment Currency: ETH
Price per token: $120 (priced in ETH)
Effective discount: ~25%
Lock Period / Unlock Date: 3 years

Justification:

Aave Protocols DAO are a core infrastructure of the web3 ecosystem. As the DAO evolves to expand its involvement with the larger DeFi and web3 ecosystem via grants and additional protocol developments and deployments, the DAO needs to have in place the financial stability to support these important endeavors, with a strong and balanced treasury as its backbone. DAOs, such as Gnosis, that have successfully diversified their treasuries are now able to operate, grow, and invest primarily from their non-native token offerings. By diversifying a portion of the Aave treasury into stable coins, the treasury can then generate stable coin yield on those assets using its own protocols, and fund grants and the DAO indefinitely. Ultimately, this would be the first step in creating an active, healthy, diverse treasury ensuring longevity of the Aave ecosystem.

Hedgey Protocol Information:

The Hedgey OTC protocol is a permissionless OTC smart contract that simply allows a seller to create a sale for their tokens with a given set of parameters; price per token, minimum purchase size, total sale amount, payment currency and unlock date. When purchased the buyers pay directly to the DAO the amount owed, and if the tokens are locked, then the buyers are minted an NFT representing their right to claim those locked tokens after the unlockDate. The NFT contract is the combination of a standard NFT contract with the token-time-locks (with some fun artwork by the Hedgey team to help visualize the tokens purchased that are locked up). As such, the NFTs can be traded and sold on marketplaces such as OpenSea, to get access to secondary liquidity while the tokens are still locked and cannot impact liquid UNI markets.

Links to Hedgey documentation:

About: Hedgey Finance

Audited smart contracts can be found at: Github repo

Documentation: Documentation

Does anyone notice most diagram of the link in Dune is “took too long to execute”

@iceman very interesting proposal, did u get some feedback?

Hey @damonxu, I haven’t gotten any feedback yet! looking for some help and feedback before I post this in the broader forum for discussion and hopefully a quick proposal. I put all this in a shared google doc, would love any feedback on here, or just on this forum discussion before going to the broader group.

@iceman thanks for jumping in here.

I would note the need for a bit more specifics - assuming you mean Aave Grants DAO here?

This reads a bit confusing and misleading.

Second, I would note that Llama does not “play” with the treasury:

Instead, they monitor and report on the balance, helping with workflows and suggesting strategy. All deployments and use of funds must be confirmed via Governance.

I would also remind you that Llama’s relationship is funded via the Grants DAO. This is all to say it feels like the audience for your proposal is a bit misguided.

While there can be better diversification of stablecoins for Aave, this needs a bit more development.

75mm tokens? This is almost 5x the circulating supply - seems this is the Amount in USD?

Great points, sorry meant thousands instead of millions. And yes agreed, Llama does not ‘play’ with tokens, they do an incredible job at reporting and monitoring everything.

Does the AAVE tokens in the DAO not fund the Grants DAO? And would it not make sense to ensure that the Grants DAO has stable coins to utilize for grants rather than deploying AAVE tokens? Are they two separate DAOs operating independently? (hard to find legal organization charts, so I understand I could be completely wrong here in the underlying operating mechanics of the entire ecosystem)

This was just an idea to get some discussion going! Appreciate you jumping in where I’m off basis here, so what do you think would make sense?

Ah, I see - makes a bit more sense now.

At a total of $375k the proposal is less daunting.

I feel it may be better received if you posted this on the forum instead of in the comments to gain more visibility and feedback.

Yea, sry about that. but i agree - will kick off a separate discussion entirely to get some thoughts from people in general first.

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@Elliott thanks for this amazing work! When will the Mar’21 report be released?

Hi all,

We are pleased to present the March Financial report, we apologise for the late running of this report. We have run into limitations with the use of Dune and are working with their team to improve the user experience of the current dashboard. We are also developing in-house our own financial reporting system that is more flexible than dune, allowing us to incorporate all markets Aave operates in. We are hoping to be able to share this with the Aave community by the end of this month in the April update.

In the meantime please do comment and let us know what you would like to see included within these reports going forward.

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